The S&P 500 Is Beating Earnings Estimates and Markets Aren't That Impressed
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Key Takeaways
S&P 500 companies are beating earnings expectations at an above-average rate, but investors are feeling a little less generous this round of earnings.
Heading into this week, during which 171 S&P 500 will report quarterly results, 78% of companies that had reported results beat earnings per share estimates, slightly more than the 5-year average of 77% and the 10-year average of 74%.
"Although there have been some high-profile misses during the US reporting season so far, the results have been relatively encouraging overall and lend support to our view that the EPS recovery is broadening," wrote Oxford Economics analysts in a research note on Friday.
Post-Earnings Beat Stock Gains Have Been Lackluster
And yet investors have not been rewarding earnings beats as generously as in recent years. Companies that have reported better-than-expected earnings so far this quarter have seen an average stock price increase of 0.3% in the five-day period centered on their earnings release date, according to a FactSet report. Over the last five years, that figure has averaged 1%.
Meanwhile, companies that have missed earnings expectations have shed 3.8% on average within the same time frame, more than the five-year average of 2.3%.
Earnings Beats Haven't Been as Big as Years Past
The market’s tough reaction to this year’s earnings could reflect this season’s smaller-than-average beats. In aggregate, S&P 500 companies have reported earnings a bit more than 4% above expectations, less than the 5-year average of 8.6% and 10-year average of 6.8%.
The magnitude of earnings beats could get a boost this week from the four big tech companies reporting: Microsoft ( MSFT ) on Tuesday, Meta ( META ) on Wednesday, and Apple ( AAPL ) and Amazon ( AMZN ) on Thursday.
But the group is expected to report its slowest pace of earnings growth since the first quarter of 2023, and Alphabet ( GOOGL ) set an underwhelming precedent last week when it topped earnings estimates by less than 3%.
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